Make or buy: how large corporate groups make decisions

  • Posted by Gerhard Pramhas
  • On 5. October 2018

 

Big-Player-Make-or-Buy-Pramhas

In my last article, I described to you the contrasts between classic small and medium-sized enterprises and large customers. My conclusion was very clear: it is better to avoid these “vultures” and concentrate on your own innovative strength and partners that match your size. That is how you secure your long-term, sustainable viability. I would like to present the other view to you today. How do potential large customers view your business? Why do they purchase products instead of producing products themselves? Why did the “make or buy” decision in your case turn out to be “buy”? Was it roulette? Absolutely not! This decision is usually considered very carefully. If you are able to understand this process of decision-making as a small player, this may open up the opportunity for you to make big money.

The problems of the big players

An experience that I have made more and more with the “big boys” in past years is that managers are increasingly enticed away by the automobile industry or are at least trained as automobile industry managers. What does this mean? It means that this generation of managers is used to thinking in large numbers. Large cash flows and volumes dominate. Small suppliers do not fit the picture. Because even if your business seems large to you, it is ant compared to the giants. Now just take some time to think about your wage totals and the wage totals, for example, that Volkswagen pays to its employees per month.

However, these giants struggle with mass customization e.g. when producing vehicles. We consumers want mass-produced products because they are more affordable, but we also have the goal of having our product be unique.

Here is an example: approximately 100 years ago the Ford model T still cost 2.5 times more than a worker’s annual net income. Today, vehicles are much less expensive and are most importantly more customized. While at that time you could not select the color of your vehicle, and had to be content with the standard black, today a huge selection of colors and combinations are available, and you are also offered a huge selection of features.

Customization has naturally become indispensable for end customers, but it does make some great difficulties for large corporate groups. What happens for example, when an end customer, because of the flexibility advantage that the large corporate group offers its customers, decides one week before the delivery deadline that it doesn’t really like “race green” and would prefer to have a car with another color? There are two possibilities: either they keep a lot of components in their inventory, which is associated with high costs, or they rely on lean production and try to “streamline” company processes.

Use your “smallness” to your advantage

This is where you get in the game. If you fulfill lean production requirements and are able to offer a special machine or functionality that your customer had not actually expected, you influence the “make or buy” decision in your favor and your customer decides for “buy” because you are faster. The price will not seem important. Then you can shrug off the request to disclose your calculation since you know that the customer wants to have your product or your service and will accept your decision to not disclose the calculation.

Would you like to change a large customer inquiry to be more favorable to you, but you do not know exactly how to present your arguments? We are sure to find the convincing words together! Contact me using my contact form or write to me at gerhard@pramhas.eu.

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